Despite increased cost of living and a possible recession in the new year, holiday spending is expected to remain steady in 2025. Consumers are prioritizing affordable luxury and value for innovation as they shop during an unusually short 28-day holiday season. What are retailers doing to maintain growth in an uncertain economy? 

Retail remains steady across channels

As a whole U.S. consumers remain resilient, showing low signs of price elasticity despite concerns around affordability. Q4 adjusted retail sales are expected to grow between 3% and 4% year over year, in line with historical averages. Matthew Boss, head of Department Stores, Specialty Softlines and Leisure at J.P. Morgan, forecasts U.S. apparel & footwear to perform above industry benchmarks with a +5% growth rate forecasted, marking the strongest holiday season since 4Q21 for the category.

E-commerce growth holds steady at 7%, slightly lower than last year’s 9% growth but consistent with the long-term shift towards digital shopping channels. Online purchases now account for nearly a quarter of all U.S. adjusted retail sales, up 50 basis points from 2024.

“We expect these share gains to continue through the holiday season and predict e-commerce penetration could reach over 40% in the longer term,” said Doug Anmuth, head of U.S. internet at J.P. Morgan.

Consumer activity: A widening divide

As a whole, consumer sentiment is currently near record lows, dropping 5% month-over-month and 29% YOY. These declines are driven by unpredictable tariff policies and the longest government shutdown on record, resulting in uncertainty, market volatility and higher prices. Looking ahead, projections indicate a one in three chance of recession next year, with core inflation expected to reach 2.7% and real GDP growth at 1.8%.

While spending on non-essential purchases accelerated by 2 percentage points overall in the third quarter of 2025, consumer activity is split. 39% of high-income consumers intend to increase their non-essential spending over the next 12 months, up notably relative to 18% in November 2024, and reported a consumer confidence rate of 6.2 out of 10. Middle income households reported steady spending intentions, providing a strong foundation for holiday sales.

Increased spending from high- and middle-income consumers is compensating for economic pressure on lower income households.  58% of low-income consumers reported they intend to decrease non-essential spending, up from 49% in November 2024. This decline is likely influenced by tariff impacts and steady inflation, and is reflected in an average 4.4 consumer confidence rating for the demographic.

“We’re also seeing generational differences in spending this year,” notes Boss. Gen Z and Millennials are driving spending growth, accelerating from 7% growth in consumer spending in October to 9.3% growth in November. Meanwhile, Gen X and Baby Boomers show slower growth at 1.6%, down 150bps compared to the previous three months.

“This hesitancy for older generations may be caused by anxiety over the recent government shutdown, which led to uncertainty around payments from social security and Medicare,” says Boss. “Now that the government has reopened, we expect spending to return to pre-shutdown growth rates.” 

Retail strategies to overcome headwinds

Despite low confidence, consumer spending is projected to hold steady in the fourth quarter. U.S. consumers are responding positively to product innovation and novelty across the board. “Accessible luxury is the winner of the holiday season,” predicts Boss. “Shoppers want high-quality products at good prices from best-in-class global brands.”

Looking forward

As we look to 2026, the retail sector may benefit from windfalls. “Potential catalysts like additional stimulus measures and interest rate cuts could provide a short-term boost for the retail sector,” says Boss. “Our top-down view is positive.”